Strategy for the Telecommunications, Media and Technology industries

Competition & Innovation in a Platform World

It was reported this week that Google is yet again under the competition microscope, this time in the USA. The claim that the tech giant is stifling competitors’ access to its Android mobile-operating system was neatly covered in this Bloomberg article. This is only the latest claim in a string of many against Google regarding anti-competitive behaviour. You may recall the leaked allegations in Europe against Google’s Shop search or in India, all of which point to Google ‘abusing its dominant position in search’.

There are definitely interesting views on both sides of this debate. Google is not the only search tool, but it is by far the most dominant. It provides billions with access to information every day and it makes money from associated advertising. In an unregulated environment it has a lot of power and from a consumer’s perspective… other search engines are just not as good. So should it be penalised? Many commentators believe so. I believe there needs to be more thought for how platforms with monopolistic dominance, like Google, are regulated. The competition laws from the ‘physical’ world may not apply to an era of open innovation, rapid innovation cycles and technological change.

Below are some considerations about monopolies and competition in a world where ‘software is eating…everything’ and platforms are becoming the norm.

1) Monopolies are uniquely constrained in their actions

Peter Thiel’s core thesis in his book ‘Zero to One’ is that entrepreneurs should seek out niches and monopolies, not heavily competitive markets, as they are most profitable and relatively easy to defend. This is true but equally, as a monopoly, you are uniquely constrained in how you act. If you own the market, agency over the whole market is difficult because you need to cater for consumer needs, government regulation etc. A company like Apple, who is in a highly competitive market, conversely can exert as much control on its own platform as it likes. The allegations lodged against Google are a response to the company trying to control its platform more tightly. If these allegations are found to be true – they will have a large effect on Google’s business both financially but also in how it defends it business model in the long term.

2) Antitrust action and remedies tend to be backward looking and expensive

In Microsoft’s famous antitrust case (1989-2002), action was taken against the company for preferring their search engine over others on new computers with Windows software. The cost of the case has been estimated in the hundreds of millions and provided for a competition remedy which was backward looking. Microsoft had to include alternate browsers in Europe. The question is – for the amount spent on allegations and defence of the case, what difference did it really make?…Not much. The change that brought Microsoft down a peg was actually the growth of the internet as a software distribution channel and mobile as a dominant device…innovation.

3) Innovation is the friend of competition and the enemy of monopolies

What we’re aiming for has nothing to do with Google as such — it has to do with the market allowing innovation

Google’s dominance in search is inevitable no matter how the Federal Trade Commission or the European Commission may or may not act. The thing that will disrupt Google’s dominance is exactly as Vestager says – innovation. This could come in the form of platforms that overtake Google’s share of revenue or new devices like the Apple Watch or disintermediation by services like Siri, IBM Watson or vertical search engines like Trip Advisor or Yelp. Microsoft found itself in trouble with the FTC because the incentives driving their business model (computer on every desk with Microsoft software on it) perpetuated a monopoly. The same could be said of Google (the structural change to Alphabet is perhaps an acknowledgement of this). The interesting strategic conundrum for Google and Microsoft is that those same incentives are ones that ill-equip monopolies for the future (i.e. miss out on the future by focusing on the present).

There is definitely a place for regulation of monopolistic behaviour, in fact it is essential. But, in a world where innovation cycles are shorter and shorter the best regulation of monopolies may in fact be the funding for and promotion of innovation – as opposed to investing millions defending backward-looking penalties and remedies.